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The single best advice Patio11 has given is "charge more". Seriously. It's been one of the scariest thing to do in the beginning, but I've now 4X'd my pricing (

• patio11 9y ago
  Thanks, that made my day.
• citilife 9y ago
  One thing I enjoy about charging more is the retention rate, it might be counter intuitive, but if you have a product worth keeping people will pay for it. Those customers will likely stay on longer, wont complain (as you pointed out), etc. When you go for the lower price point, you're getting people less in your niche and thus want more bang for their buck, or really want a different product entirely.
  • cronjobma 9y ago
    This. I once ran a SaaS for $7/mo. Churn rate was horrible. People never stayed longer than 3mo. Now I do something with a 4 figure / mo price tag and people stick around for 7/mo on avg. it’s totally counterintuitive
    • nikanj 9y ago
      4 figures per month I need to justify to my boss. After that, cutting the service means admitting I was wrong. You’d be surprised to learn how much someone else’s money people are willing to burn, to save face.
      • disiplus 9y ago
        that's true but also it depends on the customer is it b2b or b2c, something for 7$ could be something trivial, like a premium package for a note taking app, but something like a 1000$ is probably a b2b that the company needs.
    • stedaniels 9y ago
      What do you do now?
• lpolovets 9y ago
  Here's a fun stat: a few years ago, I surveyed some of my fund's portfolio companies and asked, "for a similar level of product/service, how much higher or lower are your prices compared to your initial pricing?" Out of a dozen replies, about 10% were pricing their product lower, 30% were pricing the same but taking higher margins, and 60% companies were charging 2.5x-6x more than they used to. Median was around 3.5x. So the majority of companies had marked up their prices severalfold, and only one company had lowered their prices.
  • dsacco 9y ago
    > and 60% companies were charging 2.5x-6x more than they used to. It would be really interesting if you could break that down even further.
    • lpolovets 9y ago
      2x, 2.5x, 3.4x, 3.5x, 5x, 6.2x
  • cosmie 9y ago
    Did you happen to get a timeline from those companies on their price increases? I'd be curious to see if there were any common milestones for when the companies decided to increase prices. In a few cases, I've taken the strategy of increasing prices over time as I've solidified and polished my offering. Discounting the product initially to gain enough usage stats to rough out edges, develop an internal support knowledgebase, and suss out unexpected use cases and user segments early on. I'm not sure if those products would have been as successful if I had charged more out of the gate and cut my teeth on those higher-paying individuals.
    • lpolovets 9y ago
      Sorry, I didn't ask about the timeline. My guess is the price increases were over about two years on average.
  • jtmb 9y ago
    Was the outlier Amazon?
• ericabiz 9y ago
  It's true. I actually picked this advice up from one of our investors. He said, "Offer a $995/mo package and see what happens." Within a week, we'd sold our first $995 package. This was for a B2B SaaS.
  • sonaltr 9y ago
    any reason why it's 995 instead of 1000?
    • vpribish 9y ago
      five bucks off!
      • sonaltr 9y ago
        I understand that...but when you are spending 1k does $5 really matter in that context? I'm genuinely asking - 1. 999 - looks cheap 2. 998 - mmm..why not this? 3. 995 - nice number divisible by 5 4. 990 - well...why are we loosing $10 here? 5. 1000 - 4 digits might be considered expensive but 3 might not? Trying to learn & understand selling to B2B.
        • chiph 9y ago
          The same psychological pricing cues also apply to businesses. After all - there's people making the purchase decisions and they're affected by this as much as anyone.
        • justaguyhere 9y ago
          I don't think there is a logical answer to this question. Why is everything priced either 1 cent or 5 cents below round numbers (9.99 or 9.95 or 3.99 ...)? Human brain is weird I guess. It would be better logically if things are priced whole numbers (including tax) like 10, 50, 100. We don't have to worry about pennies and it will probably be easy for accounting purposes too.
          • 9y ago
• kazz 9y ago
  Totally agree. I run a little side business where I sell digital study guides, and when I initially started I had my prices set in the sub $5 range. A while back I decided to play with my pricing a bit and see how creating a tiered pricing system would affect sales. I went from a flat fee to a $10/$15/$20 tiered system (for the same product) and sales tripled within a month.
• imhoguy 9y ago
  I always wonder how to handle existing customers with such raise. Have you just sent a mailing and started charging double price from their CC the following month?
  • mikeokner 9y ago
    You should not start charging double to existing customers (which is why Stripe doesn't allow you to edit existing plans). You should keep them on a grandfathered plan for at least a period of time and/or nag them to upgrade (optionally with a discount for their trouble).
  • johns 9y ago
    Just keep their current pricing as-is until the next time they need to change plans.
  • intrasight 9y ago
    I ask first. If they say "no", I just let them stick with the old price. I may then ask again in 6 months and see if I get a different answer. I also sometime just cancel the billing and let them continue to use the service with the understanding that there will be no support. You gotta experiment.
• Silhouette 9y ago
  The single best advice Patio11 has given is "charge more". It's certainly good advice in the right context, but it does very much depend on that context. For a B2C business, particularly one involving discretionary spending on something your customers enjoy rather than something they need, even a slight price rise can also backfire horribly, and equally a significant reduction can result in disproportionate user growth and retention and ultimately much better returns. As far as I can tell, the best thing you can do in that sort of environment is test in your own particular situation, study your data, and be very careful about making dramatic changes that you will find difficult to wind back if they don't pay off.
  • marcosdumay 9y ago
    The reason everybody here just loves Patio11 is that for this audience the odds of it not being suitable are incredibly low.
  • dgreensp 9y ago
    It does seem like if your SaaS product is truly "just for fun" and does not save anyone time or make or save anyone money, or teach a skill, or otherwise help the user be more productive, then you are right. What is an example?
    • Silhouette 9y ago
      Almost anything recreational and subscription-based seems to fit -- Netflix, for example -- unless we're arguing that this sort of thing isn't really a SaaS and different economics apply. Even if content-centric services are excluded, presumably all the recreational apps with some sort of tracking component would still qualify.
      • dgreensp 9y ago
        I agree, if you have a consumer product and are trying to get a place in the customer’s monthly budget for entertainment/recreation, a different set of rules probably apply. These cases probably aren’t as central to what is thought of as “SaaS.”
• elorant 9y ago
  So how do you price a service if you're first in a market?
  • metamet 9y ago
    Keep doubling until you're down to just one customer, then pull back and double your customers until you charge nothing. Graph that out and write an article on Medium about bell curves.
    • jboggan 9y ago
      The Martingale pricing strategy
• rebelidealist 9y ago
  If we do decide to raise prices, it it best practice to raise them for current customers or for new customers only?
  • nsp 9y ago
    Anecdotally at teachable (course creation saas, listed paid plans are 39/mo-299/mo) , we’ve grandfathered people into lower pricing and offered a couple weeks to get in on the lower price when we raised prices, which was a nice forcing function that drove a lot of upgrades.
  • mythz 9y ago
    We did and and we'll always grandfather pricing. Rewards and keeps your earliest adopters (and likely best cheer leaders) happy, whilst focus remains on delivering value to attract new Customers.
• ad_hominem 9y ago
  On the flipside of that I've seen patio11 specifically tell the tarsnap guy to charge more, while his product already costs $0.25/GB while GCP Cloud Storage Nearline and S3 Infrequent Access are $0.01/GB (and falling each year). When I was recently looking at backup solutions I immediately discounted tarsnap due to the pricing.
  • tomkarlo 9y ago
    That doesn't mean it's the wrong pricing, just that you're maybe not the customer they want. A business loses some customers at any pricing level, it's just a question of whether the incremental revenue from the remaining customers makes up for it. When you charge a penny extra, that's all incremental margin from the customers you keep, but for the customers you lose, some of lost revenue is balanced by not having the costs associated with supporting them any more. Pushing the most price sensitive customers out the door isn't that bad, because they're also likely to be the least loyal down the road, and maybe the highest maintenance relative to their spend.
    • jacobr1 9y ago
      Only if the product is competitively differentiated. If your product is a commodity you to find a value-add or niche. Then you can charge a premium.
    • ad_hominem 9y ago
      Sure, that's a good point especially considering he's a one-man show so it probably makes sense to keep the user base as ruthlessly small as possible just for support reasons alone. It does make me curious though who the target customer is - somebody who's comfortable setting up a Unix CLI tool for their backups (creating a cron job etc.), yet who wants to cede bucket ownership to a 3rd party and pay a 25x markup for the pleasure? I personally don't mind having to click "Create Bucket" in the AWS console if I get to pay $3/mo instead of $75/mo on my 300GB of data. shrugs
      • tomkarlo 9y ago
• danieltillett 9y ago
  If pricing was as simple as "charge more” then business would be so much easier. You really want to charge the price that maximises your net present value. This is not a easy number to calculate as there are so many moving parts. I have often wondered if there was a business in just feature copying a well known SAAS business and selling at exactly 50% the price. The selling pitch would be "identical product, but half the cost because we don’t have the massive SV overheads." I have seen quite a few examples of this in practice, but none where it is blatantly stated.
  • deleted 9y ago
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  • fyfy18 9y ago
    I think you missing the point. As you say there is no way to know for sure what the ‘correct’ price is for your product. One customer may be willing to pay $X and another $5X for the same features, but you need to find the number that maximises your profits across your whole customer base. As such most companies effectively just pluck a number out of the air and see what works. Patio11’s argument is that most companies are charging a safe number that works, however that number is too low. By charging more, yes you will scare away some customers, but the customers who are concerned about price aren’t the customers you want. In your case, say you cloned something like SendGrid and charged half the price. Their big customers like Airbnb or Uber effectively don’t care how much an email costs to send, they just want to guarantee that it is sent. So if you manage to score a customer like that, you are leaving a lot of money on the table. On the other hand, the customers that do care about price are likely going to be lower quality, maybe they are sending bulk newsletters which if marked as spam will damage your company (as your IPs will end up on blacklists) - meaning more work, and more cost, cleaning up their mess.
    • danieltillett 9y ago
      Yes there is a way of knowing what is the correct price and it is the one that maximises your NPV. The fact that many times companies charge too little does not change the fact that there is an optimal price. It is not found by just increasing your prices. You need to treat pricing like the hard problem it is. I tend to think the mantra of charging more has gotten a little too popular and I suspect that many companies are now charging too much. The big customers like Airbnb and Uber very much care how much it costs to send emails. The most price sensitive customers are the largest and they will try to screw you down on price much harder than smaller customers. When you are sending a billion emails the price per email is much more important than if you are sending a hundred. Taking your example, there is no reason to think that charging less would result in more spammers using your service provided that you maintained equivalent quality controls. Spammers are probably the least price sensitive mass email customers as they are professionals who are most concerned about deliverability and ROI.
• duxup 9y ago
  I did support for networking equipment for a while. It was a similar thing. If you supported the lower performance edge equipment you got more customers looking for cheap crap, trying to make it do things it absolutely shouldn't, and the customers contacting you were paid less and not that capable of helping you help them... and man were they frustrated. Higher end data center stuff, routers for big enterprises, you got customers who spent more because they knew what they wanted, knew the product, their company had actual change control, and they were being paid more so they tended to know their stuff and were easier to work with. Granted there was pressure on the high end, but it was more professional pressure.
• shostack 9y ago
  At some point though, you have to make a decision on what type of customer/client relationship you want. I'd wager in many cases you get more customers at a lower price point. If so, then it is more of a 1:many relationship. If you have significantly fewer, I consider them to be more like a "client" in the sense that you likely have a more personal relationship with them. The way to develop and manage those relationships would likely be very different, and that has implications throughout a company including support, marketing, sales, etc.
• maephisto 9y ago
  Agree! When you're working on a side project and have a few paying customers, redoing or increasing your price one of the scariest thing you can do.
• apercu 9y ago
  It's not just SaaS. All technical work should cost more. Does that translate to higher costs for goods? Yep. Is that a problem? Nope (though it will mean inflation obviously).
• sudhirj 9y ago
  I love how patio11's job description at Stripe seems to be 'write good and useful posts for the blog', period.